Upcoming Sovereign Gold Bond Series – Will it be a golden opportunity to Buy?

Last updated on May 16th, 2021 at 05:51 pm

Gold rose to a peak of Rs 56200 per ten grams in the month of August of the year 2020. The precious yellow metal has been falling over a period of the last 3-4 months. It quoted at Rs 46439 per 10 grams on 18^th Feb 2021.

Gold witnessed a rally in its prices globally since the pandemic Covid 19. Falling equity markets, negative market sentiments globally, and the curiosity of parking the funds in risk-free assets drove the momentum in the gold prices.

One can understand the price variations from the below chart.

What is leading to fall in gold prices? 

• Reduction of customs duty on gold in the union budget 2021 to 7.5% from 12.5%. This cut would reduce the retail prices and also address the smuggling of gold into India.
• The rise in US dollar and treasury bills has also contributed to a decrease in gold prices.
• Last but not least, the surge in the equity markets always has an inverse relationship with gold.

The trend generally seen in the investor’s behavior is that when the prices are at the peak, everyone would like to invest in the asset but when the prices are falling people anticipate it to fall further thus delaying making any investments! It is interesting to note that the Sovereign Gold bonds subscription levels exceeded during its offer price of Rs 56000 (per 10 grams) than seen recently.

Why should one invest in Gold?

Gold is a good portfolio diversifier and can act against inflation. It also provides financial cover during geopolitical and macroeconomic uncertainty. People tend to accumulate gold to meet their future requirements and value it as a reserve for tough times. Hence one should always keep a certain portion for investments in the yellow metal. Upcoming Sovereign Gold Bond Series – Will it be a golden opportunity to Buy?

Whether one should invest in the upcoming Sovereign Gold Bond (SGB) at these prices?

Prices at these levels seem to be attractive and one can also check the offer price of Sovereign Gold Bonds coming up on 1^st March 2021, the last 12^th series of the FY20-21. The Government fixes the price of SGB on the basis of a simple average closing price of 999 purity gold prices prevailing in the last three business days of the week preceding the subscription period. One may expect an offer price of the upcoming SGB ranging between 46000-47000 levels approximately. The offer price could be lower than seen in the recent past. Check the income tax implication of investing in SGB

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Gold rate source: IBJA

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CA Priyanka Choudhary Jain

Chartered Accountant & an experienced credit analyst. She has worked with CRISIL as a Senior Credit Analyst on rating assignments including business & financial analysis in Corporates as well as the Public Finance Sector. Please mail your queries, feedback, and any suggestions to her on info.financepost@gmail.com

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